The numbers unleashed by Australian treasurers over the past month would scare even the most free-wheeling accountant.
Since federal Treasurer Josh Frydenberg unveiled the nation's largest deficit, a forecast $213.7 billion this financial year, he has been followed by state and territory finance ministers with their own budgets of woe.
Treasurer Josh Frydenberg hands down the federal budget in early October, showing the largest deficit on record. States and territories have followed him into debt and deficit.Credit:Dominic Lorrimer
In NSW, Dominic Perrottet had started the year expecting a string of four consecutive budget surpluses. Instead, he is facing four consecutive deficits including a $16 billion shortfall this year.
The NSW economy is almost six times the size of South Australia's. In SA, the Marshall government is forecasting a deficit of $2.6 billion — or about a sixth of what NSW taxpayers are facing.
Victorian Treasurer Tim Pallas was this week the latest to face the budget reckoning. In the state hardest hit by the coronavirus pandemic, he announced a deficit of $23.3 billion this year that will still be around $6 billion by 2023-24.
Only one state, Western Australia, has so far avoided forecasting a deficit and that is due to a surge in iron ore prices and a long-standing deal with the federal government for a fixed share of GST receipts.
But even WA has not been able to avoid the issue that comes with running deficits — a lift in debt. Every state and territory plus the federal government are now carrying debt levels last seen during World War II.
Victoria had net debt of $44.3 billion at the end of 2019-20. Now, under Pallas and Premier Daniel Andrews, the state is about to embark on a debt-fuelled spending binge on infrastructure and services.
The result will be net debt of $86.7 billion in 2020-21, on its way to almost $155 billion in 2023-24.
The Berejiklian government was running negative net debt in the middle of 2019. Within four years, it is expected to be carrying $104.3 billion in net debt.
All of this is dwarfed by the federal government. Commonwealth net debt is expected to reach a record $703 billion this year and then keep on climbing.
Projects like the Western Sydney Airport are lifting government debt but also providing jobs while increasing the value of public assets.
In total, net debt held by federal, state and territory governments is forecast to be at least $1.4 trillion in 2023-24.
But the term "net" hides a little of what is going on.
Governments of all persuasions hold a variety of assets against which they discount their overall debt.
For instance, the NSW government is sinking a record amount of cash into new schools and hospitals, which means the value of its land and building assets will grow from $95 billion to $107 billion over the next four years.
In other words, the net debt of all governments is being held down in part by all the extra spending they are doing to stabilise the economy in the face of the recession.
If you look at just the liabilities of all governments, the size of the future challenge becomes clearer.
Liabilities across all levels of government will this year top a record $2 trillion (or more than the annual value of gross domestic product). Of that, the federal government's share is $1.3 trillion.
By 2023-24, these total liabilities are expected to reach $2.5 trillion. Only one state, WA, is expecting both its liabilities and net debt to be falling by then.
As these billions and trillions have been rolled out, the people behind them have argued they are necessary and unavoidable. But for a country that has spent years being lectured about the value of budget surpluses and low debt, the turn of events has been astounding.
A sharp rise in unemployment, a result of the pandemic recession, has hit revenue flows to all levels of government.Credit:Jason South
Just a decade ago, the Rudd government was under fire from its political opponents because of the "debt and deficit" disaster left by the global financial crisis. If that was a disaster, the current state of the nation's books is more like the bottom line of the Four Horsemen of the Apocalypse.
At its heart is the coronavirus pandemic. The deepest economic downturn since 1931 has cratered government revenues.
A year ago, Josh Frydenberg was expecting to have $522 billion in revenue to spend. Instead, he will probably have less than $464 billion. Every state and territory is expecting far fewer dollars through the door this year because of the recession.
The reduced revenue is due to the economic damage being wrought by the pandemic. Governments have also increased spending to support jobs and businesses.
Each state and territory has outlaid billions in various measures to help their citizens. From vouchers to be spent at local tourist outlets to handouts to first-time home buyers, the cash spigots have been opened.
Just before Tim Pallas unveiled his sea of budget red, Reserve Bank deputy governor Guy Debelle reiterated his organisation's view that governments should use record low interest rates to invest and strengthen their economies.
Debelle, who was at the RBA during the global financial crisis, said one of the biggest lessons from that period was the danger of reducing policy support for the economy too early. With money so cheap, there is no excuse for a government not to borrow to rebuild their shattered communities.
Pallas channelled the Reserve Bank when arguing the decision to take on so much debt.
"The governor of the Reserve Bank has been very clear about the economic prescription for those unprecedented times: increase your borrowings. That is exactly what we're doing," he said.
"We're putting our credit writing to work, where it's needed most, to help Victorians and into the future.
"We're prioritising the use of our balance sheet to support important business and consumer confidence and household budgets record low interest rates, made the increase in borrowing remains manageable."
Based on its own forecasts, Victoria is facing the biggest economic hit from the pandemic of any state or territory. By the end of this financial year, the state economy will be more than 4 per cent smaller than it was in 2018-19.
By contrast, NSW is forecasting a hit of 0.75 per cent this year after a 1 per cent contraction last year.
Yet the Victorian Treasury is forecasting the state economy will grow by 7.75 per cent in 2021-22, due in part to the avalanche of spending unveiled in this week's state budget.
No other jurisdiction in the country, including the federal government, is expecting such a rebound.
The pay-off, from Victoria's perspective, is an economic recovery that would swamp the rest of the country. If the forecasts are accurate, the Victorian economy will have recovered quicker than its counterpart in NSW.
Ratings agency S&P Global says there is a one-in-two chance it will strip Victoria of its triple-A credit rating.
Pre-pandemic, such a warning meant something. A lower credit rating was linked to higher interest rates on a government's debt.
With global interest rates at record low levels, even threats of credit downgrades have less meaning than they used to.Credit:AFR/Louie Douvis
But global interest rates are at record lows. A third of government debt globally is traded at negative interest rates.
In Australia, the Reserve Bank is only early into a new $100 billion government bond-buying program which is explicitly aimed at keeping interest rates on government debt at a very low level.
Fellow ratings agency Moody's admits there's a huge amount of debt on the balance sheet of every government in the country.
But it is confident that, ultimately, the deficits will disappear and the debt will fall.
"We expect that debt burdens will remain above pre-pandemic levels for at least the next three years before economic growth and policy action gradually reduce them," it said.
Budget watchers and tired accountants are hoping the agency is correct.
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